The activities of investment service providers in Finland are regulated by the Investment Services Act (747/2012). In legislation, investment services refer, for example, to investment advice, portfolio management and the reception, transmission and execution of orders relating to financial instruments. Based on its specific authorisation, an investment firm may also provide its customers with ancillary services, such as, safekeeping and administrative services, grant credit and other financing associated with its investment services, and produce investment research and make general recommendations regarding transactions in financial instruments.
Providing investment services requires authorisation
Investment services can be provided only by a bank that has received a credit institution authorisation, an investment firm that has received an investment service authorisation and, in the case of portfolio management and investment advice, an authorised management company or alternative investment fund manager. An alternative investment fund manager may also receive authorisation to provide brokerage services. In addition, investment services can also be provided by, for example, corresponding foreign service providers operating in the European Economic Area (EEA) that have a branch in Finland or have notified the FIN-FSA that they are providing services in Finland. Additional information about branches and cross-border provision from Finland to abroad is available here.
Authorisations are granted if the company meets the requirements laid down for the activities and financial standing of an investment firm. An investment firm must organise its activities in a reliable manner, taking into account the nature and scale of its business. It must ensure appropriate management of business risks, effective internal control and continuity of business activities in all circumstances. An investment firm must also have in place procedures for identifying and preventing conflicts of interest. Safekeeping of customer assets must be arranged so as to eliminate the possibility mixing them with the company's own funds or those of other customers.
The FIN-FSA supervises the activities of investment firms
The FIN-FSA monitors the development of investment firms' profitability and capital adequacy on the basis of information supplied by supervised entities. The statutory requirement on capital adequacy places limits on investment firms' risk-taking. Supervised entities are prohibited from taking risks that jeopardise their capital adequacy.
The FIN-FSA supervises the codes of conduct followed by investment firms in their customer relationships and in their relationships with each other. The codes of conduct must comply with legislation, international requirements and good practice.
To safeguard investors’ funds and financial instruments, investment firms are required to belong to the Investor Compensation Fund.
Register of Tied Agents
Investment firms may provide services referred to in the Investment Services Act via tied agents. A tied agent acts on behalf and under the responsibility of the investment firm.
A tied agent may:
- receive and transmit instructions and orders from the client in respect of investment and ancillary services or financial instruments
- place financial instruments to customers
- provide investment and ancillary services or advice in respect of financial instruments offered by the investment firm to clients
- promote the investment and ancillary services of the investment firm to clients.
A tied agent may act on behalf of only one investment firm. A tied agent must clearly disclose to the customer its status and the name of the investment firm it represents.
To supervise the lawfulness of the activities of tied agents, the FIN-FSA maintains a public register (Register of Tied Agents), to which investment firms notify their tied agents. Tied agents must be registered in the public register of the member state in which the tied agents in question are established. The FIN-FSA’s register contains all of the tied agents established in Finland.
FIN-FSA must also be notified if a service provider from another EEA country intends to provide investment services in Finland by using tied agent. In this case, the notification is made by the regulatory authority of the service provider’s home state.